Khula and Ntsika: annual report

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Trade and Industry

24 March 2003
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
25 March 2003
KHULA AND NTSIKA: ANNUAL REPORT

 

Acting Chair: Prof. B Turok

Relevant documents

Khula Enterprise Finance Powerpoint presentation
Ntsika Powerpoint presentation
Part 1
Part 2
Part 3
Part 4
Part 5
Part 6

Relevant websites
Khula Enterprise Finance
Ntsika Enterprise Promotion Agency

SUMMARY
Representatives from Khula and Ntsika explained the work they do and the challenges which face them. It emerged that a big problem was that banks were not prepared to give money to small business. According to Khula all banks claim that they help SMMEs yet it was only Standard and ABSA which really did that and were leading the way. The Committee believed that Khula needed to adopt a more structured approach to solve the problem of the banks as the agency's R1 billion funds provided it with sufficient leverage.

Ntsika, a support agency for SMMEs, said it needed more funds as demand for their services was increasing. However DTI had cut down on its funding. The Committee was concerned about the focus of Ntsika because of its emphasis on the export market. It felt Ntsika needed to localise its services especially to previously disadvantaged individuals. Ntsika assured the Committee that 70% of its effort was on local development while 30% was on exports.

MINUTES
Khula Enterprise Finance
Mr. S Tati, Managing Director of Khula Enterprise Finance, addressed the committee according to the Powerpoint presentation attached. He stressed that Khula did not aim to make a profit and was not supposed to make a loss but that it aimed just to break even.

Discussion
Mr. Lockey (ANC) referred to the money which had been invested and the number of jobs that had been created according to Khula. He asked how the figures had been calculated. He made an example of an SMME which already had employees and then obtained money from Khula. Would this also be regarded as jobs created.

Mr. Tati explained that the figure was based on the number of loans given. In Mr. Lockey's example it would be regarded as jobs created and he explained that the number in the presentation was jobs created and jobs supported.

Ms. Moloi (ANC) asked if Khula was able to sustain its work and whether it was able to meet the other challenges which opened up once loans were given. She asked what relationship existed between Khula and the consumer forum and between the Department of Labour. She was concerned that Khula should localise its products.

Mr. Tati replied that capacity building was done which helped to strengthen the intermediaries. He added that there was a problem when banks did not want to lend money.

In reply to the Chair asking what happened if banks did not want to lend money, Mr. Tati replied that there was not much they could do as they did not have the leverage.

Prof. Turok felt that they should have leverage as they had R1 billion. He said something must be done.

Mr. Tati replied that banks need to answer that. All banks claim that they help SMMEs yet it was only Standard and ABSA which really did that and were leading the way. He felt that government should show the banks how they will support them if they helped the SMME sector. He said there should be some way to force banks to do this.

Mr. Turok suggested that the banks should be invited to the Committee.

Mr. Rasmeni (ANC) said that that although this was the role of the committee, the Managing Director of Khula also has a role to play.

Mr. Tati replied that that they had visited every economic forum but admitted that they had not followed through.

Prof. Turok felt that there needed to be a more structured approach.

Mr. Tati continued by saying that Khula was in contact with SETAs and collaborated with Ntsika as well.

Ms. F Hajaij (ANC) noted that women had benefited from Khula's programs. She asked what level of education had the retail financing intermediaries (RFI) which had been supported by Khula. She also asked what the provincial representation was like and felt that more should be done in the Eastern Cape.

Mr. Tati replied that there needed to be a new thrust which would include the rural areas. He said that the RFIs were more complex as they replied to demand here.

The Chair suggested that perhaps members could help by suggesting RFIs in their constituencies.

Mr. Tati felt that was a good idea. He went on to say that the level of education was low, especially those in the micro credit organisations (MCOs).

The Chair suggested that Mr. Tati present a paper to the Committee on their methodology.

Mr. Sigwela (ANC) gave an example of someone he knew in the Eastern Cape, who had done everything necessary to open a phone-shop in rural area. The banks however had refused her funding. He asked what else she could do.

Mr. Tati said that it sounded as if her profile would suit that of an RFI. He did explain that they did not have an intermediary in that area of the Eastern Cape. They were looking to set up a fund with Vodacom and other cellphone operators where they would be able to help similar situations.

Mr. Smith IFP) asked what had caused Khula to make a loss in the beginning and what would stop this from happening again.

Mr. Tati replied that they now looked at the risk. They had a monitoring unit which monitored the risks constantly. Speed was critical as a speedy response was necessary when problems arose. However losses would happen at times.

Mr. Madasa ACDP) said that he felt it would be inevitable that Khula would need to enter the market directly since banks were not willing partners.

Mr. Tati replied that the present mandate was to be at the back end of the process. There were examples where Khula had been the sole funder of RFIs.

The Chair asked why the spending was so erratic over the last few years and if it was correct to say that banks did not understand venture capital.

Mr. Tati replied that venture capital was different to debt capital. Banks wanted their money back immediately and did not have patience. With venture capital there was a waiting period and banks were not geared for this. He could not answer on the erratic spending, but did add that at the beginning they were seeking more capitalisation.

In concluding the presentation, Prof. Turok spelt out the four major points that had arisen:
- government needed to have leverage with the banks and co-operate with Khula,
- Khula would rely on members to provide possible RFIs in their constituencies,
- Khula would provide a document on the non-bankable sector and its methodology and
- the existing provincial agencies (from the former homelands) needed to be connected to Khula.

Ntsika Enterprise Promotion Agency
Mr. N Mallane, CEO of Ntsika, addressed the committee according to the slide presentation attached. He stressed that Ntsika was not a financial institution but sought to support SMMEs. It had been shown that small, medium and micro enterprises had different needs even though they are normally grouped together. For this reason they needed different interventions.

Discussion
Mr. Lockey (ANC) referred to the budget shortfall and asked how they could budget with a shortfall.

Mr. Mellane replied that there was more and more demand for their services and they needed more funds. They had obtained donor funds and the DTI had then cut their funds.

Mr. Kruger, Ntsika's financial manager, said they were trying to leverage funds from the private sector.

Mr. Smith (IFP) asked if export promotion was a proactive or reactive response.

Mr. Mellane replied that when company audits were done, some leads were picked up and some SMMEs had already started to export and they just supported them.

Mr. Rasmeni (ANC) felt that they needed to localise Ntsika's services especially to previously disadvantaged individuals. He referred to Ntsika's Tracks and asked if micro enterprises were being targeted and where this was taking place. Further was there co-operation with any of the SETAs as they did not seem to know about Ntsika.

Mr. Mellane replied that it was a challenge to reach and localise their services. The number of service providers had declined which made things difficult. The Tracks were advertised in local newspapers. He pointed out that there were 25 SETAs but at the moment they were working with two.

The Chair asked what Ntsika's objective was. The DTI's focus was on the South African economy yet it seems as if Ntsika was emphasising the export market. He referred to the Estimates of National Expenditure 2003 produced by Treasury and asked how the DTI saw Ntsika as it was only given four lines in the DTI Budget. He also asked whether the donor funds were "off budget" and if this was for special projects.

Mr. Mellane replied that the DTI was focused on growth and that exports was part of this. They were developing the local economy, but that agreements between South Africa and the EU had created the need too develop the competitiveness of SMMEs. He added that 70% of their effort was on local development while 30% was on exports. He said that donor funds came through the National Treasury. Since 2000 there had been a budget review of Ntsika by the DTI and he felt that this needed to be looked at again so that they could get more funds.

Meeting adjourned.

 

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